Fed's Powell sees 'no evidence' of overheating U.S. economy

Arturo Norris

Investors were also focused on the level of optimism Federal Reserve Chairman Jerome Powell expressed about economic growth: The stronger his optimism, the more likely the US central bank will become more aggressive in raising the benchmark lending rate to restrain inflation.

"There's no evidence that the USA economy may be overheating", Powell said during a Senate Banking Committee hearing.

The Fed holds its next interest-rate policy setting meeting later this month.

That answer stood in contrast to remarks Tuesday before the House Financial Services Committee when Powell appeared to be signaling that the Fed could be on the verge of boosting its projections to show four rate hikes this year instead of three because of widespread signs that economic growth was strengthening.

In the previous session, shares saw early gains slide away, finishing up a losing month for stocks with a down day.

The chairman of the Federal Reserve Jerome Powell, who was sworn in as Janet Yellen's replacement in February, told the House Financial Services Committee on Tuesday that his outlook for the USA economy had strengthened since the Fed's policy meeting in December, bolstered by the tax overhaul and more stimulative fiscal policy. But on Thursday he sought to stress that the central bank has not seen any reason to alter its gradual approach to raising rates.

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After his comments highlighting the strengthening economy roiled financial markets on February 27 amid concerns the Federal Reserve would raise interest rates at a faster pace, Powell made it clear that gradual rate hikes would allow the economy to continue to expand.

There were fresh signs of strength in the labor market, with initial jobless claims unexpectedly falling to the lowest level in nearly 50 years, while the Fed's favorite inflation gauge held steady at 1.5%. "There is no evidence that the economy is now overheating". If anything, he's surprised wages haven't risen faster.

"I will be honest".

Powell also said he doesn't see a tightening labor market causing wages to hit "a point of acceleration". "We've got an economy with strong momentum". "And I do think you'll begin to see wage increases coming".

"Given the recent market turbulence that was initially driven in part by higher-than-expected wage growth figures in the last jobs report, this piece of data will take on particular importance", said James Chen, head of research at Forex.com in Bedminster, New Jersey. The Fed's preferred measure of inflation - the core personal consumption index - is at 1.5 per, below the central bank's target of 2 per cent. The US central bank in December pencilled in three 25-basis-point rate increases in 2018.

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